Silver consolidates around $29.00 as upside momentum fades

• Spot silver are consolidating around $29.00, having swung as high as $30.00 and as low as $28.00.
• The precious metal still holds onto impressive gains on the day of above 7%.

It was a strong session all around for silver markets; spot silver (XAG/USD) looks set to close the day with gains of north of 7% or close to $2, silver futures are up around 8% and the largest US silver ETF, iShares Silver Trust (SLV) rallied over 7%.  Silver miners saw even more substantial gains; SilverCorp Metals (SVM) close the US session over 25% higher, Fortuna Silver Mines (FSM) with 17.4% gains and First Majestic Silver Corp (AG) with 22.1% gains. Moreover, physical silver dealers were reportedly inundated with demand over the weekend and had to place restrictions on order sizes.

Turning back to look at price action in spot prices; XAG/USD tested the $30.00 level twice on Monday and actually managed to squeeze above it in the early part of the European session. Profit-taking pushed the precious metal as low as the $28.00 level, but dip buyers came in and have taken spot prices back to $29.00, an area around which prices have gone on to consolidate.

Next retail investor short-squeeze target?

Speculation that silver has become the next WallStreetBets retail investor short-squeeze target appears to have fuelled the sudden surge in interest in silver markets; numerous viral posts on the popular WallStreetBets subreddit urged retail investors to buy gold in an effort to force a short-squeeze in silver markets, which some suggest would “destroy the banks”.

Whether a short-squeeze actually would destroy the banks is unclear; according to data cited by Reuters, global short interest in silver is equivalent to about 900M ounces, which is just short of one year of global production. Banks and brokers hold most of that, adds Reuters, with about 610M ounces. However, they say that it is not clear whether they are net short on the metal or whether their bets offset very big physical holdings.

Edward Moya, senior market analyst at OANDA, comments that “this social media speculation is at the early stage for silver and there is uncertainty about how much more momentum we can have”. He added that the addition of new investors will be a longer-term positive for silver.

Conversely, Michael Matousek, head trader at US Global Investors commented that while a lot of people are “very enthusiastic” that they are going to see moves in silver similar to what happened with GameStop and other companies last week, “they now realize there is not as much buying pressure pushing it up like some had thought”. If Matousek is right, upwards pressure on the price action is likely to ease in the coming sessions.

Key levels XAG/USD